7 things to do before the end of the tax year
The end of the tax year is the 5th April 2018. If you’ve got any spare money kicking around, or you don’t do a tax return, here are seven things you can do before then that will make a difference to your finances.
1 - Max out your ISA allowance, if you can.
The allowance is £20,000 a year. Why do it? You never pay tax on an ISA. That’s good, because it ought to save you money in the long run. For example: if you have shares an ISA, you won’t have to pay any capital gains tax when you later sell them. If you’ve cash in an ISA, there’s no tax to pay on interest. The other reason to do it: if you don’t use this year’s allowance, you can’t “roll it over” into next year.
There are several different types of ISA: cash, stocks and shares, innovative finance, lifetime, help to buy, and junior. The ISA rules are here, but roughly speaking you can only contribute to one of each kind in any tax year, and you can’t contribute more than £20,000 total. (Tip: keep a spreadsheet with dates and contributions.) If you have a child, you can also put up to £4,000 a year in a Junior ISA for them, too. Just remember it’s in their name, and it’s locked away - they can’t access it until they’re 18, and when they are, the money is theirs to do what they want with.
2 - Top up your pension.
Pension rules are complicated but the headline is: the maximum you can put in your pension in a one tax year is the lower of £40,000 or 100% of your earnings. See Checksies on employer pensions and personal pensions. So if you’ve come into a large sum of money and you want to put it into your pension, consider splitting the investment across different tax years.
3 - Pay less tax next year if you’ve donated to charity.
If you’re a higher rate tax payer and you don’t fill out a tax return, you can tell HMRC how much you’ve donated to charity in the last tax year. They’ll change your tax code so you pay less tax next year. That’s because you get tax relief on 40%. Here’s an example on GOV.UK. “You donate £100 to charity - they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).” That means if you donated £1,000 to charities with Gift Aid this year, you can claim back £250.
4 - Pay less tax next year if you’ve contributed to your pension.
For higher rate tax payers who don’t fill out a tax return, this is the same story as Gift Aid. Check how much you’ve put into your personal pension (it’s done automatically for workplace pensions), and tell HMRC. They’ll change your tax code, and you’ll pay less tax - because you don’t pay any tax on what you put into a pension.
5 - Split the sale of an asset so you get double capital gains tax relief.
Capital gains tax is what you pay on the profit of something you bought. An example: “You bought a painting for £5,000 and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).” You have a capital gains allowance every year, which means you can make £11,300 in capital gains before having to pay tax on them. So sometimes it’s worth spreading out the sale of shares or other assets so that you pay less tax. This is not avoiding tax, it is good tax planning. (OK, so it wouldn’t work well if you cut that painting in half to sell half in this tax year and half the next, but it does work with things like shares!)
6 - Ask your spouse how much they earn.
If you’re married or in a civil partnership, and one of you earns less than £11,500 (and the other no more than £45,000), you can benefit from the Marriage Allowance. The lower earner can transfer up to £1,150 of their Personal Allowance to their partner. That means up to an extra £230. You do the transferring by filling in a form and putting it into your self assessment tax return.
7 - Avoid the high income child benefit charge
If you have a child and earn just over £50,000, consider making an additional contribution to your pension plan to bring your “adjusted net income” back under 50k. This means you’ll avoid being hit by the high income child benefit charge, which claws back child benefit for higher earners. (As with capital gains tax above, this isn’t avoiding tax - the government wants you to save more in your pension.)
So those are some things you can do before the end of the tax year. Because the end of the year is also a time for taking stock and making plans, you could also make (or update) a Will, or review your life and other insurance policies, or simply have a conversation with family about what your money goals are.